Retirement

Voters To Decide On Washington’s Public Long-Term Care Insurance Program

Washington voters will decide the fate of the state’s path-breaking public long-term care insurance program in a referendum this Fall. If adopted, Initiative 2124 would make participation in the Washington Cares program voluntary, effectively killing it. The effort, largely bankrolled by hedge fund manager Brian Heywood and backed by prominent state Republicans, is the latest attempt by conservatives to dismantle the program.

Last summer, Washington began collecting a 0.58 percent payroll tax to fund the program. It will provide a maximum benefit of $36,500, adjusted for inflation, starting in 2026. The tax is equal to roughly $400 annually for an average income worker in the state. Forbes.com estimates the average salary there is about $72,000.

Many Objections

Heywood’s group, called Let’s Go Washington, makes many arguments against the public program. They say the benefit is too small and the tax is too high. But mostly, they insist workers should not be required to participate in the program.

The initiative is opposed by a rare coalition of consumer groups such as the state chapter of AARP, long-term care providers, and unions. They say Washington Cares “makes it possible for all Washingtonians to get the long-term care we need, when we need it.”

The initiative will pass only with support from low- and moderate-income workers, who benefit the most from the public program. Those with the biggest incentive to repeal the plan are high-income workers. Because the payroll tax is uncapped, they pay substantially more for the same benefit, though many avoided the tax by exploiting a legal loophole and buying private insurance in 2021.

The initiative would allow employees or self-employed individuals to opt out of the insurance program at any time. Heywood’s group insists this merely lets workers choose whether to participate. But the financial reality is that while choice sounds great, voluntary long-term care insurance is doomed to fail.

Adverse Selection

The reason is a phenomenon known as adverse selection. All insurance is based on the idea that those who have lower-than-expected claims subsidize the benefits of those who have higher-than-expected claims. When it comes to long-term care, more than half of those over age 65 will need a high level of personal care after age 65, according to an analysis by my Urban Institute colleague Richard Johnson. But since no given individual can know for sure whether they will require that assistance, insurance is a useful way to hedge the risk.

But insurance works best with a deep pool of covered people, some of whom will claim benefits and some of whom will not. Given the choice of whether to buy, those consumers who believe they will need care—say, those with pre-existing medical conditions—are more likely to purchase insurance.

If more policyholders receive benefits, carriers must raise premiums to pay claims. And the more they raise rates, the less likely it is that healthy people will buy. That can send the system into what’s known as a death spiral where insurance is so costly that only the sick buy and insurers eventually stop selling.

In the private market, few healthy consumers buy stand-alone private long-term care insurance because they fear rising premiums. And scores of carriers stopped selling policies because their risk was too high.

In 2010, Congress enacted a voluntary public program called the CLASS Act. But after actuaries found that premiums in the optional program would be unaffordable for most people, the Obama Administration killed the plan before it ever got started.

Adverse selection can be addressed by strict medical underwriting that denies insurance to those with pre-existing conditions or a risky family medical history. Private long-term care insurance rejects at least one-third of prospective buyers because they are considered too risky. That would never work in a public program, however, where it would be politically unsustainable for government to bar some voters from participating.

Beyond Washington

The anti-public insurance effort is not Heywood’s only effort to promote voter initiatives. Let’s Go Washington led petition drives for six different ballot measures for 2024. Four would curb taxes, the others back popular conservative causes such as parental rights and expanding police authority. The group tried, but failed, to get several initiatives on the state ballot in 2022, including one to kill the state’s long-term care insurance program.

Heywood has loaned or donated more than $6.2 million to the organization, which reported total income of about $6.7 million and said it spent about $7.3 million, according to state public financing records. The group did not respond to a request for comment.

Other states will be watching the Washington State experience carefully. California recently completed a detailed analysis of several alternative versions of the Washington program. And eight to 10 other states are considering the idea. As first mover, Washington has struggled with design issues and legal and political challenges.

Supporters of Washington Cares face an uphill battle in November. While critics can campaign on the often-popular promise of a tax cut, backers will have to find a way to explain the dangers of adverse selection. But whatever the outcome, the initiative will echo far beyond the borders of the Evergreen State.

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